Distortion of incentives for farm households in KwaZulu.

Abstract

KwaZulu is a less developed region of South Africa. Low agricultural incomes have contributed to widespread poverty in the region. Despite intense population pressure on the land, arable resources are underutilized. Conversely, grazing resources are overutilized. Tribal tenure prevents the sale of land and has also precluded an active land rental market. Population growth has reduced farm sizes because households have an incentive to retain their rural land rights. At the same time, the opportunity cost of household farm labour has increased. As a result, the average cost of producing crops has risen relative to product prices. Households are generally able to procure food and income at lower cost by allocating better educated workers to urban wage employment. Consequently, many households have little incentive to produce crops and are deficit food producers. Arable land is underutilized because these households cannot rent land to others who would farm it. A mathematical programming model constructed from models of representative households demonstrates that output responses to higher food prices and reduced input costs are small. Furthermore, an increase in food prices harms most rural households and lower input costs do little to improve household welfare. However, the model predicts that a land rental market will have a substantial impact on crop production and could generate significant income opportunities in agriculture and its service industries. A rental market for arable land would require minor institutional changes and has equity as well as efficiency advantages. The uncultivated portion of a household's tribal land allotment is regarded as common property for grazing purposes. Access to these grazing resources is not restricted and an empirical analysis of herd data indicates that stocking rates decline when the private cost of keeping cattle increases relative to their perceived benefits. Unlike most 'solutions' to the common property problem, privatization of grazing land would not only reduce overstocking and its associated social cost, but would also improve incentives to upgrade herd and pasture quality. It is recommended that privatization of grazing land (even in the limited sense that arable land is privately controlled) should be encouraged.